There is a certain mystique concerning ‘force majeure’ and similar clauses that seek to set out the circumstances under which a party to a contract may cease to perform its obligations. A recent English Supreme Court decision considered reliance on such a clause, adopting a literal interpretation of the words agreed between the parties.

The Facts

A shipowner and a charterer entered a contract for carriage of bauxite from Guinea to Ukraine on a monthly basis. The contract provided for payment of freight in US dollars. The contract defined force majeure in terms which could not “be overcome by reasonable endeavours from the Party affected”. 

The charterer’s Dutch parent entity was identified as a “Specially Designated National” by the US Office of Foreign Assets Control (OFAC) on the basis that it was controlled by a Russian oligarch. This meant that continued payments in US currency would, at least, be delayed for investigation by the intermediary bank. The shipowner gave notice to the charterer of a force majeure event, entitling it to suspend performance of its obligation to continue nominating carrying ships. The charterer offered to pay freight in euros instead, which would have overcome the sanctions problem, since the parent company was not a “US person”, and to cover any currency conversion costs. The shipowner refused this offer.

The charterer claimed in arbitration the costs of chartering in alternative tonnage to replace the ships that the shipowner had refused to nominate. The tribunal agreed that the shipowner had failed to exercise reasonable endeavours to overcome the force majeure. The charterer’s offer to pay in euros and meet conversion costs caused no detriment to the shipowner, who was wrong to turn it down. 

The shipowner successfully appealed (on a point of law) to the Commercial Court, which held that “reasonable endeavours” in this context does not require a party to accept a method of performance outside the contract. The shipowner could therefore not be compelled to accept payment in any currency other than the contractually agreed US dollars. 

The charterer successfully appealed to the Court of Appeal, which held (by a 2:1 majority), “by applying common sense”, that the focus should not be on “reasonable endeavours” but on the fact that the payment the charterer was offering would “overcome” the force majeure.  

The shipowner appealed to the Supreme Court.

The Judgment

The Supreme Court (unanimously) agreed with the Commercial Court. 

The parties had agreed that payment would be made in US currency. The effect of force majeure was that the parties were only required to make and accept reasonable endeavours which would achieve what had been contractually agreed. The fact that other endeavours could have achieved a different, non-contractual performance - i.e. payment in euros - was irrelevant. 

The court was persuaded by the need for certainty and predictability, as well as by freedom of contract. Parties to a contract need to know where they stand, especially when they have to make quick commercial decisions, often under extreme pressure. The right to receive payment in US currency was held here to be “valuable” and clear words, rather than grammatical nuances, would therefore have been necessary to dislodge it.

Comment

It was held here that the causal link between the force majeure event and the failure to perform was broken. English courts will apply a high threshold of causation before allowing a party to rely on a force majeure clause.

As often is the case, this decision turned on the precise wording of the contractual clause. If decisions along these lines are to be avoided, especially if it is desired to mitigate or avoid sanctions, force majeure clauses should be drafted to include specific allowance for non-contractual performance of obligations.

RTI Ltd v MUR Shipping BV [2024] UKSC 18

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